Boeing Stretched 787 Gets First Sale in Split With Airbus

By Robert Wall, Andrea Rothman and Leslie Picker -
May 30, 2013

Boeing Co. won the first order for the stretched version of its 787 Dreamliner as Singapore Airlines Ltd., Southeast Asia’s biggest carrier, split a purchase of jets with Airbus SAS valued at $17 billion.

The transaction covers 30 of the larger, 787-10X variant and 30 Airbus A350-900s, Singapore Airlines said yesterday. The airline also granted an option for 20 more 350-900s and said it may convert those to buy the larger A350-1000 variant.

Fresh 787 demand is a boost for Boeing after regulators ordered the global fleet parked for three months starting in January because of battery faults, straining customer ties. Deliveries of the 787-10X Dreamliner are due to start in 2018, contingent on the Chicago-based company’s formal commitment to a model it has been marketing since November.

“Someone stepped up early, and it will probably create some momentum,” said Howard Rubel, an analyst at Jefferies LLC in New York. “Singapore is one of those carriers that’s in the category of a very deliberate decision maker, one who sets a high standard for whatever it buys, and usually ends up in a position to be a leader in its market and others will follow.”

The Dreamliner and A350 are competitors in the wide-body segment in which Toulouse, France-based Airbus has been trying to chip away at Boeing’s historic dominance. Those planes are typically used on the longest intercontinental routes and can sell for two to three times as much as single-aisle models.

Implied Price

Singapore Airlines’ projection of a combined order value of $17 billion suggests a list price of about $279 million for the 787-10X, for which Boeing hasn’t yet published prices. The 787-8 version retails for $206.8 million, and the 787-9 for $243.6 million.

Airbus lists the A350-900 at $287.7 million, and the A350-1000 at $332.1 million. The larger model is due to start reaching customers in 2017. Airlines typically buy at a discount.

“These new aircraft will provide opportunities to grow and renew our fleet and enhance our network,” Singapore Airlines Chief Executive Officer Goh Choon Phong said in a statement, calling the orders among the biggest in the carrier’s history.

Singapore Airlines fell 1.4 percent to S$10.69 as of 9:14 a.m. in the island city. Boeing rose 1.5 percent to $100.54 at the close in New York, while Airbus parent European Aeronautic, Defence & Space Co. added 0.1 percent to 44.25 euros in Paris.

“Singapore Air is exactly the sort of cornerstone airline that the aircraft makers like to launch a plane,” said Robert Stallard, a London-based analyst at RBC Capital. “It’s a strong endorsement of the -10 business case.”

A350 Challenger

Boeing has designed the 787-10X to replace its 777-200 and compete with the mid-sized Airbus A350, which is due for its first flight within weeks. The bigger Dreamliner would seat about 43 more people than the 250 to 290 passengers on the 787-9, Boeing has said.

Ray Conner, the chief of Boeing’s commercial airplanes unit, told investors last week that adding the 787-10X may force Boeing to add production capacity. With an order backlog of more than 800 Dreamliners and output now set to double this year to 10 a month, the assembly tempo would have to increase for the larger version to reach customers this decade.

“Launching the 787-10 implies that Boeing would need to increase production,” said Yair Reiner, an Oppenheimer & Co. analyst in New York. If yesterday’s announcement “takes it a step closer to 787-10 launching, it also takes us a step closer to Boeing increasing production beyond 10 aircraft a month.”

Reiner and Stallard rate Boeing as outperform, the equivalent of Rubel’s buy recommendation at Jefferies.

More A350s

The deal with Airbus, with deliveries in 2016 and 2017, is the third time Singapore Airlines has bought A350-900s and brings the total commitment to 70 jets.

“We are certainly pleased that one of the world’s premier airlines has selected to buy 70 firm A350 aircraft,” John Leahy, head of sales at Airbus, said by phone. Lori Gunter, a Boeing spokeswoman, said the 787-10X offers “a compelling value proposition” to airlines.

Airbus has booked 616 firm orders from 34 customers for its A350 family through April, including 110 firm commitments for the largest model, the -1000, with a deal from British Airways parent IAG SA to take 18 not yet in the backlog.

Singapore Airlines said it will make an engine selection later for the 787-10X, with offerings from General Electric Co. and Rolls-Royce Holdings Plc. The plane will be used on medium-range routes, and the A350 on medium to long flights, the carrier said. The A350 comes only with Rolls-Royce engines.